— 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Good morning, ladies and gentlemen, and welcome to the Teleflex First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded and will be available on the company's website for replay shortly.
Good morning, everyone, and welcome to the Teleflex Inc. First Quarter 2024 Earnings Conference Call. The press release and slides to accompany this call are available on our website at teleflex.com.
Thank you, Larry, and good morning, everyone. On this morning's call, we will discuss the first quarter results, review some commercial highlights and provide an update on our financial guidance for 2024. We had a solid start to 2024 as momentum seen through last year continued into the first quarter.
Thanks, Liam, and good morning. Given the previous discussion of the company's revenue performance, I'll begin with margins. For the quarter, adjusted gross margin was 61.1%, a 170 basis point increase versus the prior year period. The year-over-year increase was primarily due to the favorable impact of gross margin from the termination of the MSA, the acquisition of Palette, favorable price benefits from cost improvement initiatives, partially offset by unfavorable fluctuations in foreign exchange rates and continued cost inflation.
Thanks, Tom. In closing, I will highlight our 3 key takeaways from the first quarter of 2024. First, we started 2024 with a solid performance as momentum continued from the end of last year. Overall, our diversified portfolio and global business units performed well.
[Operator Instructions] Your first question will come from the line of Patrick Wood from Morgan Stanley.
I guess for the first one, I'm curious about OEM, another very strong quarter. There's kind of a lot of different pieces moving in there. The volume environment is very good. But equally, there's a little bit of competitive noise backwards and forwards. I'm just -- I'm curious how you see that evolving through the year.
Patrick, thank you very much for the question. I think that OEM was definitely one of the standouts again within the quarter, but there were many standouts for Teleflex in the quarter, in my mind, a really strong quarter, a great start to the year, growing our revenues at 3.8% and growing our earnings faster than revenues at 3.9% and raising the bottom end of our earnings guide while covering some FX impact.
And then just quickly on the second one. Within the Urology side of things, obviously, you pulled a bit of the sales force back to get some of the training going. A, sort of how is that going? How has the response been internally? And b, how disruptive is that? How long does that kind of training process take? I know it's kind of an open-ended question, but just curious.
No, that's a fair question, Patrick. I think that the training is going well. So we are proctoring our sales reps. We have about as we ended the first quarter, we have roughly around 40% of them trained that need to be trained in this phase. So this will be completed at the end of Q2.
Your next question comes from the line of Jayson Bedford from Raymond James.
Maybe just to start for Tom. The first quarter gross margin was above your full year guidance. Revenue will increase from first quarter levels. So what pressures gross margin over the next 3 quarters?
Well, I wouldn't say there's anything that necessarily is pressuring over the next number of quarters other than what we already saw in the first quarter, which we've got inflationary pressures. We've got some FX, although we expect FX to improve as the quarters go on.
Okay. Fair enough. And then just maybe as a quick unrelated follow-up. Interventional, very strong of a tough comp Liam, you alluded to a few drivers, but just a little bit more granularity. Is this excess share gain? Is there a new product in there that's driving this growth?
So I wouldn't exactly call it a new product. But obviously, MANTA continues to penetrate the large bore market, really solid double-digit growth coming from that product specifically complex catheters, which is the bread and butter of this franchise, which is the guideline or trap line or Turnpike. They continue to grow within the market.
Your next question comes from the line of Shagun Singh from RBC Capital Markets.
Liam, your guidance calls for about 4.25% growth in 2024 at the midpoint versus 6.5% last year and your LRP target of the low end of 6% to 7%. I know you called out some year-over-year factors to consider. But I'm just wondering what accelerates the growth profile for the company from here? How are you thinking about M&A boosting your weighted average market growth. And if you could put all this in the context of your utilization commentary, it seems like there isn't a backlog, but there is still healthy demand. That would be really helpful.
No, absolutely, Shagun. And thank you very much for the question. So the midpoint of our guide, you're correct at the midpoint. And now I would remind the investment community as we laid out in -- as we gave our guide, there is approximately 1% of a headwind from an inorganic with the MSA in palette.
Your next question comes from the line of Larry Biegelsen from Wells Fargo.
This is Nathan Treybeck on for Larry. Can you talk about, given the constant currency beat in Q1, what were some of the considerations for not raising the full year guide?
Yes. So obviously, the first consideration is it is Q1, and I think if you take that into account. The other consideration is we give our guide in February, we had a really, really nice March. So that was helpful. And we came in above where we thought based on the performance of March and some of the performances that we spoke about earlier on.
Okay. And can you talk about like the drivers of growth for Palette. Is it share gains? Is it market expansion? If you could just give some color there.
Yes. The bulk of the growth for Palette is really market expansion. We have continued to bring this product to our existing customer base, and it's being adopted there I mean there is some share shift, but I would say that we are more focused on the white space than trying to take share from others within the marketplace. The product is performing exceptionally well. The sales force is very, very bullish.
Your next question comes from the line of Matthew O'Brien from Piper Sandler.
Tom or Liam, I know you're going to say it's Q1 and everything, but you just beat Q1 by about $0.15 or $0.14 on the bottom line, only taking the low end up by about a nickel. So the midpoint is only going up by about $0.025. Why the conservatism there, especially with inflationary pressures easing? And could we just start looking at kind of the higher end of that range just based on the trends so far?
Well, I would just say, first of all, we raised by $0.09 in the lower end, but $0.05 or I should say, $0.04 of that was offset by an increase in the foreign exchange rates. So again, we feel really good about the results in the first quarter. We've provided full year guidance.
Okay. Fair enough. And I wanted to ask about UroLift, but I think the more pertinent questions back on Interventional, like Jason was talking about. That performance has been very strong for several quarters in a row here. You've got this focus on structural heart. It's one of the fastest growth areas in med tech. You've got Wattson coming.
So I'll start with the last part of your question. It's definitely a focus for M&A, Matt. I've said many times that I like the cath lab as a call point. We now have a global franchise with that call point. And it is one of the key areas of focus for us when we're doing M&A. It's not the only area of focus, but it's a key area of focus.
Your next question comes from the line of Anthony Petrone from Mizuho Financial Group.
And I hope everyone is doing well congrats on a strong 1Q here. Maybe a couple of questions. One, just actually focused in on the Americas. Surprised to see just regionally, Americas actually being down a touch here. And then when you sort of bridge that to some of the divisions Vascular was pretty good, OEM obviously outperformed even Interventional Urology is touch ahead of our numbers. So where specifically in the U.S., was there slippage? Was it tough comps? Or was there other stocking dynamics in the U.S.? And I'll have 1 follow-up.
Yes, Anthony, thank you. I hope you're keeping well as well. Thanks for the question. With regard to the Americas, the biggest impact there, Anthony, was the MSA. If you'll recall, all of the MSA was booked in the Americas. So if you backed out the MSA from that, your growth would have been around 3.5% for the Americas, if you took the MSA out.
Yes. One quick follow-up would just be a high-level revisit on the M&A strategy here at Teleflex and the company has been active over the years, and it's done a number of different transactions. I remember the years of the distributor tuck-ins. There have been some R&D plays but not as prevalent as the sort of here and now revenue-generating growth accretive deals. And of course, the EBITDA level is now higher. And so maybe just to revisit on the strategy what is most prioritized and what are the size of transactions that you're contemplating these days?
So I think that for Teleflex, we're really focused on tuck-ins and scale transactions. We have done some late-stage technologies, and we've done some investments -- early-stage investments into companies, and we'll continue to do that. We have the most important thing you need, Anthony, for M&A, which is firepower.
[Operator Instructions] Your next question comes from the line of Mike Polark from Wolfe Research.
I'm curious on this CLEAR trial that's reading out at AUA over the weekend, UroLift versus Rezum. What's reasonable to expect there? Is there an impact in the field you anticipate as the data is disclosed?
Mike. Look, we have a lot of data coming out at the AUA. We have 5 different papers that are being read out and there are a number of other studies. One in particular that coming from the European group about early intervention on minimally invasive therapies and that's much better than having individuals on pharma.
Appreciate that, Liam. If I may follow up on Urology as well on the numbers. I just want to make sure I'm understanding the performance in the quarter, the expectation for the year. So if I'm doing the math correct, I have net of pull at UroLift, maybe down high teens year-on-year.
One, for the first quarter, have I done the math correct? And you said that aligned with your internal plan, and I just want to make sure that, that's all fair; and then two, kind of the path for UroLift to be better over the course of the year. It sounds like the sales force no longer being retrained and out in the field, double bag probably is a piece of that. But anything else you might be able to offer as to kind of why we get that product line trending back up the rest of the year would be helpful.
Yes, absolutely, Mike. We've discussed this on previous calls, we're not going to -- we're going to report on total Interventional Urology consistent with all of our global product categories and businesses and we're not going to provide product level revenue details for individual business lines or product categories within those.
Your next question comes from the line of Craig Bijou from Bank of America.
Liam, I know you're not going to get into the specifics on '25, but street expectations for margin expansion have come down looking at '25. So maybe if you could just talk about some of the opportunities to expand margins in '25 and how those might be lining up maybe without actually given specifics, but just kind of talking about where you could see some improvement.
Well, I think, Craig, it all starts with the gross margin line. And if you look at this year, at the midpoint, we're going to expand our gross margins by about 100 basis points. We've had a really good start to the year. Gross margins expanded 170 basis points in the first quarter of the year. So God rest my mother. She used to say, good start is half the battle, and we've had a really good start on the gross margin line.
And if I could follow up on maybe some standard bariatrics and Titan. And as you expand the product offering there, just -- maybe you can just give us revisit kind of how to think about the contribution from Titan and standard bariatrics in '24 and going forward? And maybe what the new commercial updates or the new product expansion can do for growth?
Yes. Thanks, Craig. So first of all, on the product expansion, having buttress is an important add-on to the Titan product. 60% of surgeons who do gastric sleeves use buttress. And technically, the Titan product doesn't need buttress because of the seal pressure and a very high burst pressure. But it's what they want to use.
Your next question comes from the line of Richard Newitter from Truist Securities.
It's actually Sam on for Rich here. Just first one from us on 2Q, I think $760 million to $765 million a touch below Street there. Some of that's from FX, some of that's from the OEM pull forward. But just anything else that you would call out in 2Q sort of explaining the delta between Street and the guidance?
No. They are the 2 big buckets, Sam. There's about $6 million of FX in Q2 and also there's a few million of OEM products that were originally planned to be shipped in Q2. Just bear in mind that the MSA was slightly higher in Q2, that's something just to bear in mind. And as we go through the year, you've got that dynamic of the MSA, and you also have the dynamic of Palette ramping as you go through the year. So you've hit on the 2 main impacts on Q2. $760 million, $765 million, 3.7%, and we feel good in our ability to deliver that.
Great. And then just on Palette. I know try to avoid, given the product specific that you given us the $66 million to $68 million. Just curious what you'd be looking for in the market or in results to take that range up and what could give you confidence there.
Yes, Sam. So it started very well. That's the first thing I would say. The second thing I would say, there's a lot of enthusiasm for the product. The third thing I would say, the expanding of the indications is a key strategy for us, not for this year, but in outer years to continue to grow that.
And your next question comes from the line of Kristen Stewart from CL King.
I just wanted to touch on the Vascular Access business that came in a little bit lighter than what I was expecting. Can you maybe just comment on the performance there in the quarter and what we should expect for the balance of the year?
Yes, Kristen, that's a good observation and a good question. The Endurance recall impacted the vascular business in Q1, and we'll anniversary that as we go through Q2. So when you get into Q3, you'll have a clean look at Vascular. So you should see vascular improve as you go through the year.
And that concludes our Q&A session for today. I would like to hand back over to Lawrence Keusch for closing remarks.
Thank you, Polly, and thank you to everyone that joined us on the call today. This concludes the Teleflex Incorporated First Quarter 2024 Earnings Conference Call.
Thank you for joining us. You may now disconnect your lines.